PNC Financial 2Q17 Earnings Call Notes

Bill Demchak – Chairman, President and Chief Executive Officer

Consumer side should be more influenced by rates than shrinking of balance sheet

“we will see when the Fed makes the decision to reduce its balance sheet and they have announced that they will do that somewhat gradually and through time that will drive liquidity out of the market. We will see the biggest impact of that in my view coming out of the corporate side first, which has the highest beta therefore it has the least impact on us. I think the consumer side is going to be driven frankly by continued increases in short-term rates by the Fed as opposed to the necessary shrinking of their balance sheet, which is going to occur over the course of years, the way they have scheduled it out.”

Probably a couple of moves away before you start seeing deposit shift

“On the consumer side. There is obviously a small, but growing online presence of deposit gatherers who are paying well above what traditional bank pays, but it’s a tiny percentage of total consumer deposits. I think we are a couple of moves away from the Fed before you start really seeing the positive beta shift on the consumer side.”

PNC Financial 1Q17 Earnings Call Notes

Bill Demchak – Chairman of the Board, President, Chief Executive Officer

Pleased and a little surprised by Fed hike

“We were pleased and frankly a little bit surprised to see another interest rate hike by the Fed in March. Of course, we welcome news of economic indicators that seem to suggest a confidence amongst consumers and business leaders. Now, as I said before, PNC is positioned to benefit should environmental factors turn more favorable. But still, we remain focused on execution against our strategic priorities.”

CRE growth replaced by C&I

“This time last year, growth was dominated by real estate. This quarter, real estate loans are actually down but have been replaced by growth in the rest of C&I which seems to run counter to recent industry data. The C&I growth was very broad based across equipment finance, ABL, large corporate, middle market and for the first time in seven years, straight commercial loans, which we categorize as loans declines in the $10 million to $50 million range in revenue.”

Rob Reilly

Credit quality stable

“Turning to slide nine. Overall credit quality remained stable in the first quarter. Total nonperforming loans were down $146 million or 7% linked quarter with improvements in both commercial and consumer loans. Total delinquencies decreased by $192 million or 12% reflecting improvements in all past due categories. Provision for credit losses of $88 million increased by $21 million linked quarter attributable to loan growth and normalizing trends in our commercial loan book. Net charge-offs increased $12 million to $118 million in the first quarter, largely driven by seasonal increases in home equity and credit card loans. The annualized net charge-off ratio was 23 basis points, up three basis points linked quarter. Our credit quality metrics remain near historical lows and these results fully reflect the outcome of the recently completed Shared National Credit examination.”

PNC Financial 4Q16 Earnings Call Notes

The PNC Financial’s (PNC) CEO Bill Demchak on Q4 2016 Results

Our loan growth trailed our peers last year because of risk management

“In our view for the most part of ’16 neither the credit, and certainly, not the rate markets offered us an attractive risk or reward opportunity. So we maintained higher than usual cash balances and our loan growth trailed peers.”

Extra regulatory costs probably don’t go away no matter what happens to the regulation

“The only other thing I’d say is that, that the regulatory burden as it relates to, if you’re thinking CCAR or heightened expectations or three lines of defense, they are certainly a lot of that, much of which by the way, we would keep and go through the exercise anyway. But there’s also a lot of regulatory costs that probably were missing from the industry historically. I’m thinking about to build an AML costs as we put bodies in operations and investment technologies as it relates to AML. I’m thinking about general compliance with consumer laws, independent of where and what happens to the CFPB, it’s clear that that we all had work to do on that. We are done investing in that by and large, but I don’t think those costs go away, no matter nor should they, no matter what really happens to the regulation.”

Rob Reilly

We’re expecting two rate increases one in June and one in December

“So, yeah, so on the revenue side, up mid-single digits, again around the loan growth that we have there. The rate backdrop, as I’ve mentioned, we have built into our plans two rate increases in 2017, one in June and one in December both 25 basis points.”

Middle market hasn’t really been borrowing

“So, there is loan demand out there coming from the BB+, BBB kind of sweet spot client for us, we’ll lend into that. But the issue in middle market for the last two years or three years, as they just haven’t borrowed. The borrowings you’ve seen have been largely large corporate and that’s been M&A related and/or share price, share repurchase which is driven leverage. I think there is a big opportunity for this country for kind of middle to small large size corporate to start investing in themselves and to grow.”

Reason I’m cautious is that nothing has really happened yet

“What I’m cautious about is nothing has actually happened yet, other than there has been a move in rates, right, and it changes sentiment. And I think we need to start seeing some of confirmations get through. We need to see real progress on tax reform. We need to see real progress on infrastructure, spending bills of state and local, and then all of a sudden, this thing takes flight, but right now, it’s just people talking about it.”

PNC 3Q16 Earnings Call Notes

PNC Financial Services Group’s (PNC) CEO William Demchak on Q3 2016 Results

Commercial lending appears to be on a stable path despite h.8 data

“We actually don’t expect a big change. We’ve kind of said stable, but slower growth for a while, and that’s what we’ve experienced and kind of what we see in the pipeline into the fourth quarter. I mean, I think, Rob can jump in here. If we look at the mix, we still got some growth on a large corporate on the back of M&A. We interestingly, for the first time in a while, saw some healthy growth in middle market, which we hadn’t seen for a while, continue to see real estate balance growth.
So it’s – on the C&I side, it’s kind of steady as it goes. And I’m not exactly sure, what’s happened with peers and with the H8 data. But as it relates to what we’re able to do with existing and new clients, we seem to be on a steady path.“

Not seeing any signs of stress in CRE. Former CMBS product now being structured as life insurance assets

“ Our real estate business has been fairly consistent for a number of years, where we kind of work with Class A developers and markets and products and that continues. Now, we have seen a slowdown in the origination of new projects and a pickup of balance related – balances related to permanent lending.
So think of the product that historically might have gone into CMBS is now being structured more like what we would call life insurance product, much lower leverage, better loan to value, and you’ll see that in our permanent lending line.
So we’re not seeing stress. In fact, our portfolio actually on a credit metric basis continues to improve. We would tell you that we monitor it pretty closely. We’re clearly seeing some signs of weakness in multifamily. In a couple of markets, we see some signs of weakness down in Houston on the back of oil and gas. But against our book, we feel pretty good about it.

Robert Reilly

Majority of energy related credit pressures have subsided

“Borrowing any dramatic changes in energy prices, we believe the majority of the energy-related credit pressures we’ve experienced in 2016 have largely subsided. In summary, PNC had a successful quarter, driven by growth in revenue and well-managed expenses. We grew loans and deposits and continued to deliver significant shareholder returns. We believe the U.S. economy will continue to grow at a steady pace, and our plans assume a 25 basis point increase in short-term interest rates by the Federal Reserve in December.”

PNC 2Q16 Earnings Call Notes

PNC Financial Services’ (PNC) CEO Bill Demchak on Q2 2016 Results

Lower yields are going to result in NIM impact over time

” the impact of these two issues which are part economic and part technical will result in more pressure on NII and NIM overtime for PNC and most of the industry. In our cases it’s largely going to be a function of our securities books as higher yielding securities give way to lower yielding securities going forward. ”

Banking is a cyclical business and you can’t beat the cycle

” PNC and its investors have long benefitted from our discipline commitment to well managed risk, well run businesses and well served customers and that’s the approach that we will continue to take as we work to grow long term relationships and create long term value for all of our consistencies. You have heard me say this before but banking is a cyclical business and you can’t beat the cycle. Our job is to mute the impact and to add too rather than detract from long term value in the process.”

We’re not bond traders

“look, I wish six months ago we had done it and then taken it off, right. But we’re not bond traders and where rates are today the downside tail risk to trying to do that in today’s rate environment just doesn’t makes sense to us.”

It’s tougher to get positive operating leverage without help from interest rates

“I think the simplest way to think about the direct impact of rates on our near term income all of sequel is a roll of our securities book which is at the 269 book yield plus or minus today and a replacement equal risk at about 169 over the course of bunch of years, you know that that would play out. Now, if we really got in that environment where we believe to that we were stuck here all out Japan which I think is the case. We could put liquidity to work and raise our duration of equity if we got stuck into that, so there is offsets to it. And that also obviously assumes that we don’t grow loans or do many other things we do, grow fee and so on and so forth. Look it’s a simple statement to make that it is tougher to get to positive operating leverage without help or at least without pain from interest rates. But we are focused on being able to accomplish that.”

We could grow NII, the question is whether we’d get a good return to do it

“Look we could grow NII the issue is whether you think it’s a good return to do it in the near term so simple look go look at the growth in whole loan mortgages showing up on two years balance sheets as they aster mortgage production on other balance sheet versus putting it out into the market”

PNC 1Q16 Earnings Call Notes

Bill Demchak

This quarter will be reported as a miss

“although this quarter will be reported as a miss, we were solid in terms of our execution against the things that are in our power to control.”

Don’t see negative trends in credit outside of energy

“Despite the hit to provision this quarter, beyond the energy book and certain exposures in the steel industry, we don’t see negative trends in other areas of credit.”

Continue to see a solid economy

“I would say as we look out at the landscape, the condition supporter view that the fundamentals remain solid in the U.S. economy. The labor market continues to improve and the tight job market is going to eventually lead businesses to raise wages, which should in turn support consumer spending. Also, we see housing and commercial construction offsetting drag from trade and the downturn in energy production.”

We have not seen the end of NPLs coming from the energy sector

“If your question is, have we seen the end of NPLs coming from energy, the answer to that is no. Even inside of our ABL book where we might have very small charge-offs, because it’s secured, we expect that we are going to have a number of credits that we are going to have to liquidate inside of that book, particularly in the services sector, which is what they bank. So you will see NPLs continue, I think, on the energy book. To the best of our ability and consistent with the SNC review, we are fully reserved for what we know today.”

There isn’t credit pressure in other areas though

“but beyond what we are seeing in energy and as I mentioned in my comments, some of the specialty steel guys that supply the energy sector, there just really isn’t credit pressure showing up in the C&I space or real estate and certainly in the consumer space. Consumers are really strong.”

Provision is so low right now that a single credit can double it

“provision has generally been so low that single credit can double provision, just because we are operating off such a low base. So it gives us some pause, frankly, as we think out and put guidance on what provision will be a quarter out. ”

We’re still expecting two rate hikes this year

“Yes. We still have two in there. It’s a practical matter, only one matters because you the second would be, at the end of the year it would impact 2017 as opposed to what we do this year, but that is in there.”

I don’t see value in buying other banks right now

“our attitude on M&A in terms of buying other banks remains the same and that we are basically out of the market. I don’t see value there. I think there is many other things that we can spend our capital on to offer better return to shareholders.”

PNC 4Q15 Earnings Call Notes

Bill Demchak

2B of energy exposure. Credit deterioration but modest charge offs

“We are cognizant of the volatility effecting the energy related in commodity sectors. That stated not much has changed regarding our exposures since last quarter. Specifically on oil and gas we have a total of $2.6 billion in outstanding, which is relatively flat quarter-over-quarter. This represents approximately 2% of our total commercial loan book. We have approximately $700 million in outstanding to Energy and Production Company, $1 billion to midstream and downstream and $900 million to oil services. Approximately $200 million of this services portfolio is not asset based on investment grade and this poses a greatest near term risk consistent with what we’ve been telling you the last few quarters. We continue to experience some portfolio deterioration in the fourth quarter, though charge-offs were quite modest. And during the quarter we increased our reserves to reflect the incremental impact of the continued decline in oil and gas prices.”

Our operating plan factors in 3 rate increases this year

“Turning to 2016 we’re obviously off to an unexpected rough start to the year relative to the global macro economy. However our 2016 operating plan completed at the end of last year and prior to this recent volatility assumes continued steady growth in GDP and a corresponding increase in short term interest rates three times this year, in March, June and December with each increase meaning [ph] 25 basis points.”

The Fed is expecting rate increases this year

“by the way some investors and even the Feds dot [ph] taught themselves I guess having going four times, obviously the market doesn’t believe that today. We’re three weeks into the year, so we’re not going to bin a whole planning process until we see how it plays out, and as it plays out we would give you, as we do always quarterly guidance on what you might expect.”

We are not interested in traditional bank M&A

“As it relates to tradition of bank M&A we are not interested, we are not involved there is a variety of reasons you’ve heard me talk about before. Sometime through time could that somehow change sure because forever is a long time, but today it’s not on our radar.’

We’re focused on other areas for potential M&A

“I would tell you that we have taken some small investments and syntax [ph] stuff you would had seen an announcement with EWS and Clear Exchange in partnership with six other large banks to put a P-to-P product out on a ubiquitous way to all bank clients. We are interested in distributive ledger block chain technology, we are interested in some of the corporate payments dispersement technology, none of these are big numbers. But in terms of our focus and where we think about growth opportunities in how to deploy capital it would be much more focused in that area than it would be a traditional bank deal.”

In commercial real estate we’re a little concerned about energy and tech heavy cities, but we’re still doing new projects

“The bankers will tell you and as we look at markets, we’re obviously concerned about energy heavy cities, we’re a little bit concerned about some of the technology heavy cities across all property types and that you would see that in our underwriting criteria in the step that we target to the extend we’re still doing new projects.”

Even with rate increases we’re still wildly accommodative

“the thing you always have to hold in the back of your mind is we’re coming off of a base of zero, so we’re still wildly accommodative and notwithstanding some localized stress in the economy, as you know doesn’t necessarily stop you from raising rates. ”

Do see some pressure in Texas spreading on the margin

“you know the localized economy here notwithstanding some reliance on coal and natural gas is actually quite strong. We see some pressure down not surprisingly into Texas and other areas on our energy book and it’s starting to spread as you would expect it would into at the margin real estate and other service providers from everybody from accountants to lawyers than anybody who was in the game as the oil boom started. But you know that’s kind of at the margin and beyond that I don’t know that we see a particular region in the country that is standing out ”

Traveling around the country seeing a little lower activity at the margin

“although I’d tell you, Mike Lyons who runs our C&I business just finished a grand tour around the country, seen a lot of clients and kind of came back with the notion that more so than he saw in the last time he was through, he said people are feeling more margin pressure and at the margin a little lower activity than they otherwise thought they’d see at this point in the year.”

Rob Reilly

There’s a shift in commercial real estate towards more permanent lending

“in terms of our commercial real-estate. We continue to see growth there, not quite at the same levels that we’ve seen in the past years. But the big difference there and it didn’t really sit up in the fourth quarter, but it’s been happening for a while, is the shift in the emphasis in terms of what we’re lending into much, much more around the permanent lending. You can see that in our supplement and less so on the construction sides in terms of a mix. So our commercial mortgage loan balance as you can see it continued to increase quarterly and we would expect that to continue.”

Demchack (cont): “Part was what’s happening is the combination of a lot of the European Banks pulling back post-crisis. And then the lack of volume that’s getting through the CMBS market is continuing the opportunity for what historically has been called Life Insurance product. But basically balance sheeting term loans with good debt service coverage and loan to value ratios kind of as we hit this big CMBS maturity double plus their projects get funded and come online. So that’s kind of where we see the opportunity.”

PNC 2Q15 Earnings Call Notes

We continue to await some definitive indication of when rates will rise

“From a macro perspective, the operating environment is pretty much what we expected it to be at this point in the year. We continue to await some definitive indication of when interest rates will begin to rise, but in the meantime we are executing well on the things we can control.”

We expect rate increases in September

“We continue to believe the domestic economy will expand at a steady pace this year. Our plans assume the Federal Reserve will begin to raise short-term interest rates beginning in September.”

We agree probably pressure on deposits with rate increase

“We are probably closer aligned to JPMorgan, and I think there is going to be a pressure, particularly on the retail side, just given the differentiation in LCR qualification retail deposits versus wholesale.”

Tough to budget for 16 before knowing where rates are

“We are not in position to be able to give guidance on ’16 specifically yet, we will get to that when we set our budget up in the fall and get a feel for where we are particularly around interest rates, but the message that we want to convey again this morning is that we are very mindful of the revenue-expense relationship.”

There are some complaints when we close branches but not too bad

“More often than not, it is not positive, but having said that we have very long lead times in advanced warning to affected customers and warm handoffs on moving people up to their branches.

As you would expect, we get the occasional complaint when we do consolidations, but we are quite thoughtful about how we go about it in the lead time, the lead times associated with notifications and follow-up customer service.”

The tech we are adding is going to give us leverage to add scale without adding variable cost

“historically our challenge was we couldn’t scale our activity without scaling the cost along with it, because we had much more manual process than we otherwise wanted. A big part of what we are building out in technology through automation is the ability to scale without adding variable cost associated with it, so I think we can do material. Once completed we could do material more – volume than we are doing today, importantly without adding the personnel costs that typically comes along with that and that is what we are building into this plan.”

Corporate loan volume is being driven by M&A at large banks, middle market is very competitive

“a lot of the volume increase you see particularly the large banks is on the back of large corporate M&A activity. We have some of that in our growth rate, but we are more of a middle market bank than a large corporate bank, so we participate less in large corporate growth and some of the big banks. In the middle market space, specifically, has been really competitive. We have not had outright growth in vanilla middle-market loans I think going back to five or six quarters rather.”

C&I Loan pricing was flat for the first time in ~10 quarters

“What I would tell you is, it is interesting to me that spreads for the first time in I do not know, 10 quarters were basically flat this quarter, so maybe we have hit the bottom at least in this rate environment.”

You’ve had deposits massively outgrow loans, that’s going to have to mean revert somehow

“We have been in a period of five years, where deposits have massively outgrown loans. You will hear different people, the dialogue in the industry is as it normalizes to mean revert, is that going to happen by deposits shrinking or by loans growing, so U.S. bank thinks there is going to be a big loan growth spark. I hope they are right.”

Ya the securities portfolio is going to incrementally increase but we’re not making a big bet

“We like to 10-year a lot better to 240 than we did at 179 or wherever it hit towards the end of the first quarter. I think and I listened to that conversation you are talking about. Look, I think at the end the long ends going to have a slow grind higher. We have deployed, as you saw this quarter, a little more cash into the securities book. We are never going to make a single big bet that is not who we are. We are going to increment our way in as rates change here and we have a large opportunity to do that relative to the way we are invested today.”

If rates rise very gradually after 16 that’s a bigger issue for our expense planning

“If rates do not rise in ’15, in that September hike, that is really not necessary expense related. We have bracketed that around in terms of NII. It is not a huge number. The bigger issue as Bill pointed out, relative to ’16 and beyond in terms of the gradual rate rise. That is a much, much bigger impact to our revenue.”

PNC Financial 1Q15 Earnings Call Notes

Given weak economic data it’s clear that we are likely to see rates rise more slowly

“it’s also clear, given the most recent jobs data and some data out this morning on manufacturing, that we are likely to see interest rates rise later and slower than previously anticipated, which if correct will have an impact on our net interest income for the remainder of the year and out-years.”

We’re going to have to work harder to find efficiency gains

“we’re going to have to work harder to find additional efficiency gains without slowing our strategic investments in technology, and the transformation of our Retail platform.”

Total assets increased by 2%

“Total assets during the first quarter increased by $8.4 billion or 2%. Commercial lending was up $2.9 billion or 2% from the fourth quarter, primarily due to new account production and modest utilization increases in Corporate Banking and commercial real estate.”

Tangible book grew 9% y/y

“our tangible book value reached $61.21 per common share as of March 31, a 2% increase linked quarter and a 9% increase compared to the same time a year ago.”

We still don’t think credit trends will stay here

“While we were pleased with this performance, we continue to believe credit trends will not remain at these levels.”

While we’re decreasing headcount in retail facing business, we’re bring on more expensive headcount

“I think it’s a continuation of the same as people work to comply with new regulations. I think there’s opportunity through time, as I’ve talked about, to automate some of that work set. But what we are seeing generally, while we’re seeing kind of decreased headcount or change in headcount in our retail-facing businesses, we’re seeing more headcount in our staff services area and importantly, more expensive headcount.”

Credit has been phenomenally good

“Credit continues to be phenomenally good. We’re at 20 basis point charge-offs. We talk about a 40, 50 basis point number kind of through the cycle. So at some point, unless we’re just in a golden period of great credit forever which I never believe, it’s going to go up. We’re seeing no evidence of that today. Our credit quality, you heard us say, actually modestly improved in terms of some of the statistics of upgrades, downgrades, charge-offs, net delinquencies and other things quarter-to-quarter. But that is a concern.”

If credit turns before rates do then you’re going to see depressed earnings

“If credit turns for the banking industry before we have rate normalization, you’re going to obviously — you’re going to see depressed earnings, yes.”

We’re not going to make a massive shift in the balance sheet for a 6 month delay in rates

“I think our core asset sensitivity position will remain. We think it’s the right position. If rates are delayed a quarter or 6 months, you don’t take a massive shift in the way we position the balance sheet for a 6-month delay.”

The problem with buying loans is that you’re not getting a relationship

“buying loans is the same as buying a security. I’m not investing in a relationship. I’m not getting cross-sell. So it’s sort of a positioning trade. And I guess at the margin, to the extent we got a better return on an individual asset that was a loan versus a security, we would do it.”

GE is further out the risk curve than where we usually operate

“With that particular seller, what we have found in the businesses where we overlap with them is they are further out on the risk curve than we typically operate.”

A lot of that stuff is going to struggle in the regulated bank space so it will end up in private equity and CLOs

“we are looking through all the materials that are showing up from the different dealers on portfolios that are for sale. But it’s a tough putt [ph] for us. There’s not an entire business that we’re not in that we want to be in. And as I said, most of those assets, particularly on the commercial side, will struggle inside of a regulated bank space at least in my view, and I think you’re going to see a lot of that go into private equity and ultimately into CLOs.”

To simply buy a loan to plug the interest rate is a poor long term strategy

“If there’s an asset for sale that we can get a good economic return on, either directly because it’s very cheap or because it comes with a relationship that we can cross-sell, then we will do that independent of where interest rates are. But they’re not substitutes. And to simply pile down on credit where I’m not getting a return to cover a hole made by something I can’t control, which is interest rates, it’s just — it’s a lousy long-term strategy.”

Blackrock is a great cash flow generating investment for our holding company

“we strip them out as well and look at some of our metrics x BlackRock. Some of them are not flattering and we’re focused on that. But in terms of the way we think of their earnings, they’re a diversified fee-generating, cash-flow-generating entity to our holding company that’s a great part of our franchise.”

This rate thing is an industry wide issue. You can either choose to wait it out or try to chase yield

“Your reaction to this can take one of 2 directions. Our choice is to not change our core balance sheet position and ride this out. That’s a PNC choice. Another choice could be to invest into it through portfolio purchases, through levering the balance sheet and securities, and you’d putty over it for a period of time. We’re just not doing that. So everybody’s facing this and has the same decision to make, and people will choose differently.”

PNC 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Credit quality continues to improve

“Credit quality continues to improve, and we improved our capital position.”

credit may get a little worse next year, but will still probably be manageable. We are projecting rates to rise, but after this morning it’s anyone’s guess

“When we look into next year, we believe that we’re going to be able to continue to execute against our plans to grow fee income and control expenses. While it is likely the credit provision will rise from the historically low levels of issue, we believe credit charges will be well-contained also. The wildcard is obviously net interest income. At issue is if, when, and how much the Fed will raise rates next year. And I’ll tell you we currently forecast in our planning against a mid-year rate hike with funds getting the 1% by the end of the year.

Now, this is somewhat less aggressive than the Fed’s own rate plots, but particularly after this morning, it’s much more aggressive than what’s currently priced in the market. I think at one point this morning, futures actually had the Fed completely out of the market next year. Now, we’ve come back from that, but we’re obviously in a pretty volatile period of time for rates. And rates are going to be the thing that largely drives our net interest income performance next year.”

This market feels like an over-reaction to me

“just as an aside, the economy right now, we go out and talk to our clients. It actually feels a lot better than the sentiment. So I’m personally a bit confused absent we get the news out of Europe which is clearly struggling.

The U.S. economy feels very strong and resilient. And personally, I think this is a bit of an overreaction, particularly on the rate side. We’ve had an equity correction here that’s down – I don’t know what it is right now – 7% or 8% from the highs. But we’ve rallied rates down to basically zero again and have taken the Fed off the table for all of 2015 at least is the market saying. That doesn’t feel right to me.”

I wish I had a crystal ball

” If you look, the yield on the two-year Treasury right now I think is 29 basis points, which is four basis points more than I get leaving it floating at the Fed, so I’ll leave them there. But we do have a lot of dry powder. We’ve been that way for a while. We’ve been wrong for a while. I wish I had a perfect crystal ball and we could have invested and then sell everything today, but we didn’t. And we’re not in the business of making those dramatic bets with our balance sheet.”

If the Fed doesn’t suck everything out with reverse repos, the deposit outflow issue should be mitigated

“the notion of doing less of the reverse repo facility would in fact cause the rundown of the Fed balance sheet to take a longer period of time than it otherwise might. So the impact on deposit outflow, in effect, as QE goes away, is slower than it might be. If that’s all true, right, then the need to chase deposits and have higher betas is somewhat muted.

Now I don’t know if that’s true. My fear and our worry is the Fed liquidity leaves the system and people compete for those deposits to comply with LCR, particularly the retail deposits that you’d otherwise see higher deposit betas that you might have in past cycles. So we’ll see how that plays out. But you are right to assume that the roll off of QE and how the Fed balance sheet shrinks will have a different effect on deposit flows than just – if and when the Fed raises rates”

It’s very difficult to make money in leveraged lending

“In the C&I space, rather than industry, what’s been in the headlines and it’s true, is leverage lending continues to be at a place where we would view it as tough to make money. As an aside, we don’t play in the space, so it doesn’t really matter to us so much. But that’s where the headlines are on C&I”

We’ve run scenarios, I don’t necessarily believe them, but we’ve run them, where we get a 40 efficiency ratio in the right rate environment

“And many on the call have heard me say before we’ve run cases here without efficiency ratio gets to impossibly low levels in the 40s% in the right rate environment. And as an aside, I don’t think we can necessarily get there.

I don’t believe the financial projections, but that’s where the leverage is and that’s – therefore, I don’t want to set a target out when it’s largely driven by a variable I don’t control which is rates.”